Defence of Usury

Shewing the Impolicy of the Present Legal Restraints on Pecuniary Bargains in a Series of Letters to a Friend. To Which is Added a Letter to Adam Smith, Esq.; LL.D. on the Discouragements opposed by the above Restraints to the Progress of Inventive Industry

Jeremy Bentham's clever application of applied economics, Defence of Usury, Shewing the Impolity of the Present Legal Restraints on the Terms of Pecuniary Bargains in a Series of Letters to a Friend. To Which is Added a Letter to Adam Smith, Esq; LL.D. on the Discouragements opposed by the above Restraints to the Progress of Inventive Industry was first written while Bentham was visiting Russia in 1787. ("Impolity" was changed to "Impolicy" in a later edition.)

The book was an immediate success, and a total of four editions were published in Bentham's lifetime (1748-1832).

In this work, Bentham accomplishes two things. First, in an orderly manner replete with concrete examples he covers every possible objection to the regulation of usury (charging of interest rates that are apparently above the market rate), from religious restrictions that tainted the connotation of the word, to the economics of risk premiums. Second, throughout the work he champions those who are marginalized by society. He tears apart anti-Jewish bigotry. He argues strongly for the rights of the poor and even the feeble-minded to make their own choices in life. His emphasis on the ability of individuals to be the best judges of their own particular circumstances, and their right to use their own best methods for the pursuit of happiness, became the basis of modern utility theory.

Bentham's ability to entertain his readers is well-illustrated in his classic horse-trading satire in Letter IX. Here, he uses the words of Sir William Blackstone (renowned jurist, whose works later became the basis of legal education throughout England and the United States) to highlight Blackstone's own inconsistencies. Bentham's sentence structures often seem ornate and overly-complex today. Yet, these very ornaments enabled him to spoof and poke at the foolish ideas of legislators and judges while maintaining decorum, delivering what we would today call "zingers".

The editions differ little, and the 4th edition (1818) is reproduced here with only minor typographical corrections.

Bentham wrote, but decided against publishing, a tentative Preface to the second edition and a tentative "Postscript", covering tangential material he'd been led to think about. He also penned a subsequent letter to Adam Smith (beyond the hypothetical letter in the book proper), of which there is a surviving draft, hoping for Smith's concurrence with his intellectual critiques. (The critiques addressed the effects of a government attempting to lower interest rates below the market rate, and the influence of "projectors". [In today's language, "inventors".]) Smith (1723-1790), who died shortly after receiving Bentham's plea, acknowledged the letter by sending a dedicated copy of his book, but never conceded the points to Bentham. The interested reader can find these items of Bentham's transcribed and published in Jeremy Bentham's Economic Writings, by W. Stark (London: The Royal Economic Society, 1952, vol. 1, pp.191-207). Mr. Stark observes the extensiveness and disarray of Bentham's many surviving boxes of handwritten notes, and includes in his introduction a thorough discussion of these additional, previously unknown, materials.

Note, to give historical and scientific perspective to the difficulty of assessing inventions, research, and lending for those purposes, that at the time of the publication of Smith's 1776 and Bentham's 1787 work, and Bentham's brief actual correspondence with Smith (1790), there would have been enormous difficulty for a lending/investing "venture capitalist" to distinguish between credible scientific inventions and such skeptically-held but still ambiguous fields even such as alchemy! Alfred Jenner's smallpox vaccine was released only a decade later (in 1796, after inspiring Jenner's attention after an English epidemic in 1788). Eli Whitney's (1765-1825) cotton gin was patented only in 1794, and his drawings on it not even begun till 1792. Foucault's pendulum was set up in Paris only in 1852. Mendeleev's periodic table was not published until 1869. Marie Curie (1867-1934) was hired by the Sorbonne only in 1906, after having won her first Nobel Prize in 1903. But, wild, though collapsed, speculations about the potential financial gains from discoveries (the Mississippi Land Scheme and the South Sea Bubble of the 1720s), were rife in the mid-1700s. On a successful scientific front, though, the planet Uranus was discovered by William Herschel in 1781, re-exciting an interest in astrophysics that had been rejuvenated by Newton (1643-1727). Thus, Bentham—and Smith—wrote at a time when the discovery of the physical world and its financial potential was fraught with attention and hope, but yet not concrete enough to sort out with conviction.

The cuneiform inscription in the Liberty Fund logo is the earliest-known written appearance of the word "freedom" (amagi), or "liberty." It is taken from a clay document written about 2300 B.C. in the Sumerian city-state of Lagash.